Upstart Holdings (UPST) stock staged an impressive rally at the end of 2024, posting gains of 74% over the past 52 weeks and 105% over the past six months. However, in just the last month, shares of the AI-powered lending platform have faltered, giving up more than 34%.
The rise in Upstart stock earlier in 2024 followed strong financial performance and favorable macroeconomic trends, including three interest rate cuts by the Federal Reserve.
The stock’s rapid climb elevated its valuation, prompting a pullback in its price. However, the recent dip alleviates some valuation concerns, potentially providing investors with a more attractive entry point. With the valuation reset and the company’s growth prospects intact, Upstart appears well-positioned to regain momentum in 2025.
What Is Driving Upstart’s Growth?
Despite the recent slump, Upstart’s fundamentals remain solid. The company’s core product is growing rapidly and delivering impressive economics. Its ability to offer competitive rates across different credit tiers positions it as a leader in the lending space. Furthermore, Upstart’s newer ventures, particularly in auto and home lending, are gaining significant traction, reflecting its potential for sustained expansion.
Another bright spot is the company’s funding model. Upstart has secured a durable and committed capital supply through innovative partnership structures, supporting its operations even in uncertain market conditions. Meanwhile, its credit performance continues to strengthen, providing a solid foundation for future growth.
Economic tailwinds further enhance Upstart’s prospects. Recent and anticipated interest rate cuts will likely drive borrowing activity, and Upstart’s platform is set to benefit from this. Its AI-driven technology allows the company to offer competitive rates across credit tiers, making it an attractive choice for borrowers. This is evident in its personal loan originations, with the segment witnessing solid growth.
Further, Upstart’s auto loan segment is also accelerating. During the third quarter of 2024, auto loan originations jumped 46% sequentially.
Upstart’s growth trajectory is bolstered by strategic partnerships and product innovations. For example, its collaboration with certified digital retailing OEMs has expanded its market reach, increasing opportunities among franchise dealers. The company has also introduced a redesigned in-store software product for dealerships, improving usability and access to critical information, which strengthens its position in the auto lending space.
Further, on the refinance side, it upgraded the loan application experience and reduced the average funding time. These measures will likely support the segment’s growth in the coming quarters.
Upstart’s home equity segment is another bright spot and is experiencing remarkable growth, with originations more than doubling sequentially in the third quarter of 2024. Strong credit performance in this segment has boosted investor confidence. The company’s technology enables instant verification and simplifies the lending process. This, along with its geographic expansion, positions the home equity business for robust future growth.
Upstart Focuses on Efficiency
Operational efficiency remains a key focus for Upstart. Investments in automation and machine learning are driving improvements in loan servicing and collections, reducing loss rates, and enhancing borrower approval rates. This approach strengthens margins and provides a sustainable competitive advantage over time. Upstart’s ability to reduce servicing costs while improving roll rates reflects the scalability of its platform.
Upstart’s balance sheet remains solid. Despite accelerating loan originations, the company has reduced the volume of loans held on its balance sheet, strengthening its cash reserves. This demonstrates effective management of supply and demand dynamics, a critical capability as the company continues to scale.
The Bottom Line on UPST Stock
Even without significant external tailwinds, Upstart is growing at a solid pace. Its core business is expanding steadily while its newer ventures are gaining ground at an impressive pace. With additional interest rate cuts likely in 2025, the macroeconomic environment could provide further momentum.
While Wall Street analysts currently rate the stock a “Hold,” the recent pullback presents a compelling buying opportunity.
Upstart’s solid growth, favorable funding environment, innovative technology, and a strong balance sheet positions it well for long-term growth.
